Flight Delay Compensation: Do air travellers really benefit from the current regime?

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I am not really a neutral observer on the topic of flight delay compensation. I was peripherally involved in the process that led to the implementation of EU Regulation 261/2004, which changed the compensation limits for denied boarding, as well as introducing a new right for compensation for cancelled flights, and a right to be looked after in the event of a flight delay. Representing the interests of large tour operators at that time, I was not unhappy with the Regulation – tour operators and their charter airlines didn’t cancel flights, and rarely if ever, intentionally overbooked passengers. Furthermore, tour operators had long felt it appropriate to look after their customers in the event of a flight delay, and the new proposals did not really go any further than the levels of care that we were already offering.

 

That comfort disappeared in 2009 when the European Court of Justice (ECJ) decided to extend the law, under the guise of interpreting it to give equal treatment to anyone affected by the Regulation, and made it obligatory to offer compensation at the same levels to delayed passengers as to those whose flights had been cancelled. This became a concern because the levels of compensation were set so as to be “effective, proportionate and dissuasive” – i.e intended to dissuade the airline from acting in the way it had done so. That is reasonable when the action – cancelling a flight or denying boarding to someone because you have chosen to overbook the flight is within your own control, and thus avoidable, but begins to look like a harsh penalty when the action, delaying a flight for whatever reason is generally outside your control.

 

The Courts, both in Luxembourg (the ECJ) and at a national level have since 2009 looked to extend the rights to compensation for delayed passengers, and make it more difficult for airlines to avoid making payment, partly on the basis of wanting to give a consumer benefit, and partly on the grounds of simplicity – if it is too difficult for consumers to make a claim, they will not do so, and thus lose a right. Whilst this is superficially attractive, in that delayed passengers potentially now get significant compensation, it comes at a cost. Ultimately, someone has to pay that compensation, and since profit margins are wafer thin in the aviation sector, that almost certainly comes from increased fares charged to every passenger. To put some numbers in this, IATA predict that 2015 will be one of the most successful years ever for the airline industry. However, within Europe, they also predict that this means that European airlines will make on average $4.27 per passenger profit, which at today’s exchange rates is about £2.75. When you realise that compensation levels per passenger are set at either €250 (£185), €400 (£295) or €600 (£445) depending on the length of the flight, you can begin to see a slight imbalance between compensation payable, and both the profit, and equally the seat cost for flights on European airlines.

 

As compensation rights have been extended, a mini industry has developed, in that there has been a growth of claims management companies and lawyers specialising in “helping” customers make claims for their flight delays. There is a remarkable level of consistency between the fees charged by the numerous claims businesses offering this support, and they typically charge 27% of the value of the claim for their assistance, sometimes with admin fees and other costs on top of this percentage fee.

 

For me, one of the more unsatisfactory decisions emanating from the courts has been that even though the aviation industry never expected to pay compensation for flight delays – and the legislators (both European Parliament and European Council of Ministers, representing national governments) never intended that compensation should be payable – as they made clear in submissions to the ECJ, the courts have applied the right to compensation retrospectively. As a result, as a delayed passenger, even if your flight delay was up to 6 years ago, and you were appropriately looked after, you can still seek compensation for that delay. Much of the work of the claims industry is encouraging customers to bring these older claims, as they recognise that this provides a good source of income for them.

 

Flight delays happen for many reasons, but one thing is clear – generally no airline chooses to delay its passengers, as any delay, irrespective of the compensation rights, comes at a cost to the airline – they have additional crewing costs, operational costs and other costs arising from that delay. Some delays can be said to be within the control of the airline, but most are not directly within their control. The aviation industry is heavily regulated, and levels of maintenance of aircraft are much higher than, say, cars, buses or trains. We would all agree that this is a good thing, as the last thing that any passenger would want is their aircraft going wrong mid flight. This means that aircraft often get delayed as a result of technical and other issues which need to be fixed before an aircraft departs. The airline doesn’t want to delay the flight, but equally is not going to risk flying an unsafe aircraft.  One of my former colleagues used to compare the situation with problems with cars. In most cases, if a car breaks down in the middle of a journey, this is unexpected and unintended. It may be that if the owner has not checked their oil levels in a year, and the engine seizes up due to lack of oil then the owner can be blamed for that fault, but more often than not, the reasons are unexpected and unforeseeable. Despite that, the courts have decided that once the delay passes the compensation threshold, then even in those circumstances, the airline should pay compensation.

 

All this would be mainly of academic interest if flight delays only affected a handful of air traveller. However, it is easy to get an idea of the level of flight delays by looking at the CAA website, as they keep data on flight punctuality. The CAA monitor flight punctuality at the 10 largest airports in the UK. They haven’t yet finalised their numbers for 2014, as they are still compiling the December data, but they do keep historical data on line. That shows that the numbers of delays are still quite small – there were over 1.4 million flights from those airports in 2012, and just over 8,000, or 0.58% were delayed by more than 3 hours, and the numbers were very similar in 2013. The challenge then comes when you identify the number of passengers affected by those 3+ hour flight delays. Using CAA data again, you realise that this is slightly over 1 million air passengers in each year. Some of those passengers will not be able to claim as the delay was obviously and definitely outside the airline’s control, for reasons like heavy snowfall at airports, storms, or even volcano eruptions; with a further number being unable to claim because they were on a flight with a non EU carrier flying into Europe from an airport outside the EU. This still leaves a massive number affected by long delays – and I calculate around 600-650,000 passengers in each year. If every one of those passengers claimed compensation, the cost to the airline industry would be massive.

 

Bearing in mind that the claims industry is charging a 27% fee to assist in these claims, it’s easy to see how much money is simply disappearing from the aviation industry into the pockets of the claims companies in relation to these flight delays. On the basis that the profit margins of the airline industry are so small, ultimately, the only way that the compensation costs can be recovered is by increasing the air fares charged to all passengers. So, the next time that you think that you have paid a lot for your flight in Europe (and to be fair, we still have some of the cheapest fares in the world), bear in mind that part of your fare is going towards the cost of the Bentley or Mercedes sitting on the driveway of the owners of the claims companies who are making their profits from the airline industry.

 

I have always felt that if compensation is payable at all for flight delays, it needs to be proportionate to the price paid for the journey, not some arbitrary sum which is set at a level to punish the airline for misbehaving. Whilst the Regulation is being reviewed by the EU, I am not holding my breath that we are going to see that proportionality introduced, but we only hope.